Analysis Of The Major Legal Problems Associated With Limited And Unlimited Liability Of Business Organizations Under Ethiopian Laws

Abstract

Limited liability, a very crucial concept in today’s business world, which bases the distinct personality of the business entity from the personality of those who own it, has become an indispensable part of contemporary corporate laws. Thus, the concept of limited liability is the first to be mentioned among the core characterizing features of companies. But, these days the concept is also becoming familiar in partnership firms. In both corporations and partnerships, it enables the owners limit their liability only to the extent of what they have already invested in the firm. In Ethiopia too, this concept of limited liability have been characterizing Companies in Ethiopia since the coming in to force of the 1960 Commercial Code, although, it is surrounded by legal problems irrespective of its sensitivity. Thus, the objective of this thesis is to doctrinally analyze the major legal gaps associated with limited and unlimited liability under Ethiopian laws of Business Organizations and to answer what major legal problems are there associated with limited and unlimited liability and thus to answer whether the Commercial Code balances interest of the corporate members and that of creditors. Accordingly, the research shows that there are certain legal problems associated with limited liability of corporate shareholders, in relation to sources of limited liability, on how to mitigate the moral hazards caused by limited liability to creditors, on how to impose unlimited liability, period of limitation within which rights has to be claimed and on the treatments given to firm owners in one hand the creditors on the other hand while dealing with limited liability. Finally, the writer recommend on eight major points with a view to provide a solution to the major legal problems that surrounds limited and unlimited liability so identified by this research and also to make a right balance between the two competing interests of creditors and the firm owners while regulating liability of the firm.